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Bankless is starting to go wild with cash-outs, what stage of the market are we in right now?
Original Article Title: Local Tops: what makes the market go up and down
Original Article Author: mikeykremer, MessariCrypto Tech Lead
Original Article Translation: zhouzhou, BlockBeats
The following is the original content (slightly reorganized for readability):
Alpha Leak: The vile behavior of BanklessVC clearly indicates that we have entered the market's "exploitative PvP phase," so protect yourself and your gains. I suspect this cycle has topped out; it's just a natural pullback reflecting the crypto market's search for pain points to exploit, although this pain point could persist for some time.
Tokens like Virtuals, ai16z, and heyanon may create new highs in the rebound phase but also face narrative risk, so keep reassessing your market thesis.
Why Does the Market Rise?
The market rises due to new capital entering the market, which is quite evident. From now on, I will use the concept of the "wealth effect" to describe the process of new capital entering the market. We all hope that cryptocurrency can create real value in the world and share this growth through monetary expansion. Here are several ways to achieve this goal:
1. Creating Wealth through Innovation (Airdrops)
Airdrops have become a powerful value redistribution mechanism in the crypto market, capable of generating significant wealth effects that benefit a broad set of participants. For example, the September 2020 Uniswap airdrop set an industry standard, distributing 400 UNI tokens to over 250,000 addresses (worth about $1,400 at issuance), with a total value eventually exceeding $9 billion.
The December 2023 Jito airdrop was an early catalyst for the Solana meme coin bull run.
The Jito airdrop distributed 90 million JTO tokens, worth $165 million at issuance, with some users receiving rewards of up to $10,000 by simply transferring $40 worth of JitoSOL. The Jito airdrop fueled the growth in Solana's total value locked and increased on-chain activities. This wealth effect facilitated broader adoption and development of the Solana ecosystem, similar to how Uniswap's UNI token catalyzed the growth of DeFi.
The token distribution model of Jupiter further showcases the transformative potential of airdrops. They plan to distribute 7 billion JUP tokens, covering over 2.3 million eligible wallets, making it one of the most widely distributed airdrops in crypto history. Jupiter's airdrop strategy aims to expand its ecosystem through incentivizing long-term participation and governance involvement. These airdrops have demonstrated remarkable efficiency in broadening market participation.
The wealth effect extends beyond direct economic gains; these airdrops transform users into stakeholders, enabling them to engage in governance and protocol development. This transformation creates a virtuous cycle, as benefiting participants reinvest wealth back into the ecosystem, further driving market expansion and innovation.
These strategic allocations have proven to be powerful market catalysts, igniting broader bull market cycles in their respective fields. For example, Uniswap's airdrop triggered the DeFi summer of 2020, with its distribution fueling an innovation wave in decentralized finance. Similarly, the December 2023 Jito airdrop became a turning point for the Solana ecosystem, driving TVL growth and sparking unprecedented on-chain activity.
This surge in liquidity and market confidence laid the groundwork for the subsequent meme coin explosion, leading to significant market growth. These airdrops effectively acted as stimulus programs covering the entire ecosystem, creating a self-reinforcing cycle of investment and innovation that defined the era characteristics of their respective markets.
Wealth Accumulation (Margin Buyer)
When the market experiences strategic airdrops and other proactive catalyzing events, it attracts previously passive observers to enter with new capital and enthusiasm, forming a virtuous cycle of market expansion and innovation.
Airdrops evoke significant positive FOMO, driving both new and existing users to engage more deeply in the market.
Previously onlooker investors, upon witnessing successful airdrops and subsequent market momentum, begin to deploy capital, transitioning from spectators to active participants. This shift from fiat to crypto assets represents genuine new capital entering the ecosystem, rather than a simple transfer among existing participants.
Large financial institutions are increasingly facilitating this transition. Companies like BlackRock, Fidelity, and Franklin Templeton have launched products that bridge traditional finance with digital assets. The involvement of these institutions helps legitimize the market and provides a more accessible entry point for observing funds. This expansion creates a positive feedback environment where new entrants contribute to overall market growth.
Unlike a zero-sum trading environment, a market with active new participants has created a true wealth effect through expanded liquidity, increased development activities, and broader adoption. This positive feedback loop has attracted more cautious capital, further driving ecosystem growth.
3. Wealth Creation Through Leverage (Multiple Expansion)
During the peak of a bull market, leverage becomes the primary driver of price appreciation, signaling a shift in the market from value creation to value multiplication. As the market enters the price discovery phase, traders increasingly use leverage to amplify their positions, forming a self-reinforcing cycle of upward momentum.
As Bitcoin enters the price discovery phase above its all-time high, leverage ratios expand significantly as traders seek to maximize their exposure. This sets off a chain reaction where borrowed stablecoins fuel further buying, driving up prices, and encouraging more leveraged positions. This multiplier effect accelerates price volatility.
The growing prevalence of leverage has also introduced systematic fragility to the market. As more traders take on leveraged positions, the possibility of cascading liquidations increases, especially when borrowing stablecoins becomes more expensive and harder to come by.
The rising cost of stablecoin borrowing is a key indicator that the market is entering its final stage. This marks the transition from organic growth to leverage-driven expansion, where the market no longer creates new value but merely multiplies existing value through debt.
At this stage, a high reliance on leverage puts the market in a precarious position. Sudden price fluctuations could trigger massive liquidations, leading to swift price corrections. This vulnerability indicates that the bull market is nearing its end as the market increasingly depends on borrowed funds rather than fundamental value creation.
What Causes the Market to Drop?
When funds exit the market, the market experiences a decline, as seen plainly. This is essentially the reversal of the wealth effect, where speculators capitalize on market sentiment, smart money exits to lock in profits, and foolish money incurs losses due to liquidations.
Wealth Extraction from the Market, You Are Here
Cryptocurrency ecosystems often go through cycles of value extraction, where savvy operators devise various strategies to extract funds from enthusiastic market participants. Unlike innovative value distribution, these strategies systematically drain liquidity from the market through various predatory mechanisms.
One of the most sickening points in the Bankless story is that they extracted thousands of SOL from the ecosystem with just 2 SOL.
The recent launch of the Aiccelerate DAO further demonstrates the evolution of this phenomenon. Despite the support of prominent advisors such as Bankless' founder and industry veterans, the project faced criticism upon launch as token recipients began selling without a lock-up period. Even well-known projects can become tools for rapid value extraction.
Celebrity tokens are also a prime example of this predatory behavior, with these projects using malicious smart contracts and organized selling to transfer wealth from retail buyers to insiders, ending the meme coin bull run cycle. Such value extraction events severely damage market confidence and hinder the entry of compliant participants.
These actions not only fail to establish a sustainable ecosystem but instead create a cycle of distrust, impeding the mature development of the entire cryptocurrency ecosystem.
Instead of reinvesting profits in ecosystem development, these schemes systematically drain liquidity from the market. The extracted funds usually flow entirely out of the crypto ecosystem, reducing the overall available capital for legitimate projects and innovation.
From blatant scams to complex operations supported by reputable institutions, this trend is concerning. When well-known institutions engage in rapid value extraction, distinguishing between legitimate projects and elaborate scams becomes increasingly challenging for market participants.
2. Sellers Only
Were you surprised when Bored Ape Yacht Club (BAYC) peaked after 3 months?
As the market started to decline, a noticeable asymmetry emerged between seasoned players and retail participants. The former could quickly sense the market turning, while the latter remained immersed in an optimistic narrative. This phase was characterized not by the influx of new capital but by experienced traders systematically withdrawing liquidity.
Professional traders and investment firms, while reducing their exposure, still maintained an outwardly optimistic stance. Venture capital firms quietly cashed out through over-the-counter trades and strategic exits, preserving capital without impacting the market. This operation created an illusion of market stability, even as significant funds quietly exited the system.
"Smart money" also began retracting liquidity from DeFi protocols and trading platforms. This subtle but sustained liquidity drain made market conditions increasingly fragile, although this impact may not be immediately apparent to the casual observer.
It appears that some smart money is exiting the market, exhibiting the psychology of denial: when seasoned players secure profits, retail investors often still believe that a dip is just a temporary buying opportunity.
This cognitive dissonance is reinforced in the following ways:
The echo chamber of social media maintains an optimistic narrative
Reliance on unrealized gains in a bull market
Misinterpretation of the "diamond hands" mentality
Most retail investors miss the optimal exit window, typically holding on even during an initial downturn, attempting to justify their decisions. By the time the downward trend becomes evident, much value has already been lost, and with the spread of panic, selling pressure intensifies.
The continued exodus of professional capital has worsened market conditions, with each subsequent sell order's impact on price becoming increasingly evident. This deterioration in market depth is often unnoticed until significant price swings expose the system's fragility.
In contrast to the favorable environment of new capital inflows during a bull market, this stage represents pure value destruction as capital systematically exits the crypto ecosystem, leaving remaining participants to endure escalating losses.
Leverage Implosion (Liquidation Cascade)
The final phase of market capitulation reveals the destructive impact of excessive leverage, echoing Warren Buffett's famous quote: "Only when the tide goes out do you discover who's been swimming naked." The most intense collapse in the crypto market vividly illustrates this principle.
This collapse began in June 2022 with the bankruptcy of the 3AC $10 billion hedge fund. Their leveraged positions, including a $200 million exposure to LUNA and a significant holding in the Grayscale Bitcoin Trust, triggered a chain reaction of forced liquidations. The fund's failure exposed a complex interwoven network of loans, impacting over 20 institutions through its default.
FTX's collapse further exemplified the danger of hidden leverage. Alameda Research borrowed $100 billion from FTX's clients, creating an unsustainable leveraged structure that ultimately led to the closure of both institutions. The revelation that 40% of Alameda's $14.6 billion in assets was locked in illiquid FTT tokens further exposed the vulnerability of its leveraged positions.
This crash triggered widespread market contagion. The collapse of 3AC led to multiple cryptocurrency lending platforms going bankrupt, including BlockFi, Voyager, and Celsius. Similarly, FTX's crash set off a domino effect in the industry, with many platforms freezing withdrawals and eventually filing for bankruptcy.
The chain liquidation revealed the true face of market depth. As leveraged positions were forcibly liquidated, asset prices plummeted, triggering further liquidations and creating a vicious cycle. This exposed that behind the market's apparent stability, there was more reliance on leverage rather than true liquidity.
As the tide receded, it revealed that many self-proclaimed savvy institutions were actually swimming naked, lacking proper risk management and being overleveraged. The interconnectedness of these positions meant that once failed, it could trigger a systemic crisis, exposing the vulnerability of the entire crypto ecosystem.
Outlook for the Future - Narrative Risk
The title of this article is somewhat provocative. My intuition tells me that this market correction is healthy, albeit painful, and the market will bounce back. My price targets, especially for Bitcoin, remain high ā but I have taken my chips off the table, locking in the Bitcoin gains I am willing to carry into the next cycle. If this is indeed the end of the cycle, remember: no one ever went bankrupt from taking profits.
I have written multiple times (Article 1, Article 2, and Article 3) about the importance of following the market narrative to avoid being trapped by old coins. The longer the market downturn, the more the narrative will change. If the market fully recovers tomorrow morning, I expect virtual currencies, ai16z, and virtual currencies to continue to lead. But if the market takes longer to recover, then you should look to emerging coins to attract new fund inflows.
What I want to tell you is not to be biased towards the coins you hold or insist on holding them through these downturns (unless you truly have strong convictions). Even if they hit new highs, I dare to bet that you will lose out on a lot of potential gains by not timely converting to new coins.
The sole reason anyone posts a Fibonacci chart is to convince themselves (and others) that they can sell at a higher price.
ćOriginal Article Linkć
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China's Central Bank and Eight Other Departments' Latest Regulatory Focus: Key Attention to RWA Tokenized Asset Risk
Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:
To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:
āāRecently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:
āā(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.
āāThe business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.
āāA stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.
ļ¼IIļ¼Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.
āāEngaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.
āā(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.
āāThe China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.
āā(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.
āā(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.
āā(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.
āā(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.
āā(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.
āāļ¼IXļ¼ Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.
āāļ¼Xļ¼ Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.
āļ¼XIļ¼ Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.
āāļ¼XIIļ¼ Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.
ļ¼XIIIļ¼ Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.
āāļ¼XIVļ¼ Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.
āā(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.
āā(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.
āā(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.
āā(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.
āā(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.
āāThis notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.
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Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:
To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:
āāRecently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:
āā(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.
āāThe business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.
āāA stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.
ļ¼IIļ¼Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.
āāEngaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.
āā(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.
āāThe China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.
āā(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.
āā(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.
āā(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.
āā(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.
āā(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.
āāļ¼IXļ¼ Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.
āāļ¼Xļ¼ Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.
āļ¼XIļ¼ Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.
āāļ¼XIIļ¼ Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.
ļ¼XIIIļ¼ Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.
āāļ¼XIVļ¼ Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.
āā(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.
āā(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.
āā(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.
āā(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.
āā(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.
āāThis notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.
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